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Macroeconomics: The Day Ahead for 13 June

  • Modest run of data and events as Fed and US CPI aftermath are digested, along with unexpected UK RICS setback & solid Australia labour report, Eurozone Production, US PPI & weekly jobless claims, G7 leaders meeting, rash of central bank speakers and BoJ ahead; Italy and US debt auctions
  • US PPI: Street ‘whisper’ to the downside of median forecast following CPI, energy to weigh on headline, Trade Services the wild card for core
  • Fed: hawkish tilt to FOMC SEP forecasts still leaves two cuts by year end firmly on the table
  • Japan: no rate change expected, quantitative tightening debate likely quite fierce as caution over market stability plays against inflation and growth outlook


After yesterday’s deluge of major data and the FOMC meeting, a more modest schedule awaits today, with Australia’s labour data, Japan’s quarterly BSI and UK RICS House Prices surveys to digest ahead of Eurozone Industrial Production, US PPI and weekly jobless claims. There are a broad mix of central bank speakers (ECB, Fed, BoC), ahead of tonight’s’ BoJ meeting, but the focus will inevitably be on the G7 leaders meeting, which gets under way in Italy, and where the wars in Ukraine and Gaza, along with tensions with Russia and China are likely to be the main areas of discussion. Govt bond supply takes the form of Italian 3, 7 & long-dated BTPs, and the final leg of this week’s funding exercise via way of $22 Bln of 30-yr T-Bonds.

** U.S.A. – May PPI, FOMC post-mortem **

– Yesterday’s lower than expected headline and core CPI was perhaps most notable for the marginal, but nevertheless significant -0.04% m/m drop in ‘super core’ CPI (which strips out housing), the first drop in nearly 3 years, and paced not only a drop in used car prices, but also car insurance (though the y/y rate remains very high), apparel, recreation and unsurprisingly air fares, given the drop in oil prices. PPI was forecast to echo CPI in m/m terms at 0.1% headline and 0.3% core, even if base effects would push up headline and core y/y rates to 2.5%, if forecasts are correct. The FOMC projections were surprisingly hawkish, above all the push back to just one rate cut for 2024, though the split those looking for none (4) or one (7), and those expecting two cuts (8) implies two cuts are definitely still on the table. The more surprising aspect was raising the long-term rate to 2.8% from 2.6%, and the lack of changes to its 2024 GDP and Unemployment forecasts, though in both the latter cases this may be intentional, so as to allow adjustments in September, and by extension justify a rate cut. Powell was rather more dovish, playing down the significance of the change in rate expectations, and suggesting that many FOMC members had not incorporated yesterday’s CPI into their rate expectations. While this generated some quite sharp intra-day volatility, markets appear to be assigning greater importance to the data rather than the Fed, next week’s run of US activity data along with Fed speakers’ assessment of the meeting now becomes the focal point.

** Japan – BoJ policy meeting **

The official call rate target is expected to be held at 0.0-0.1%, however a reduction in its JGB purchase volumes is also anticipated, as the BoJ embarks on a likely slow pace of quantitative tightening (QT). But the main point of focus is likely to be on governor Ueda’s press conference, in which he is expected to express greater confidence that the sharp rise in wage settlements at large companies (which admittedly only constitute ca. 15% of employees) will help to ensure a ‘virtuous wage-price cycle that should see CPI around target, and per se open the door to a further 15 bps rate hike in July, and more than likely a further 25 bps in October. It will be interesting to see how much reference is made to the impact of the weak JPY, even if hefty intervention has managed to arrest the fall for the time being, and yesterday’s US CPI tentatively opens the door to a more dovish Fed policy stance. There does appear to be a division opening up on the BoJ, not only in respect of how the economy and inflation involves, but above all the rate hike and quantitative tightening strategy, with a good number of board members clearly very concerned about taking any steps that are not a case of snail’s pace gradualism.

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